Monday, September 26, 2016

The Baker-Polito Administration today released a comprehensive report, State of Charge, detailing the value of deploying energy storage in Massachusetts and a roadmap of policy recommendations for growing the energy storage market and industry in the Commonwealth. The report found that the addition of energy storage to the state’s diverse energy portfolio could realize hundreds of millions of dollars in cost savings for Massachusetts ratepayers, shave the impacts of peak demand on the state’s energy infrastructure, and reduce carbon emissions by better integrating renewable resources into Massachusetts’ energy infrastructure. State of Charge was commissioned as part of the Administration’s $10 million Energy Storage Initiative, aimed at making Massachusetts a national leader in energy storage.

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The comprehensive energy diversification legislation recently enacted by Governor Baker makes Massachusetts only the third state in the nation to authorize an energy storage procurement target, if the Department of Energy Resources deems such a target prudent.

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Advanced energy storage technologies include batteries, flywheels, thermal and compressed air technologies that allow utilities and electricity customers to store and discharge energy as needed instead of purchasing or generating more expensive energy during times of high demand. The study found that on average from 2013-2015, Massachusetts electricity customers annually spent over $3 billion, 40% of the total annual electricity spending by consumers in Massachusetts, on the top 10% most expensive hours. In addition to managing energy costs, energy storage can provide power during storm-related power outages or when renewable generation is low, such as at night, when solar energy isn’t being produced. Energy storage can also help the electric grid operate more efficiently because it is a fast and flexible resource that can respond quickly to changes in renewable resources’ variable output, thereby reducing wear and tear on traditional generation infrastructure resulting in less fossil fuel consumption and the associated greenhouse gas emissions....

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In order to increase storage deployment and maximize ratepayer benefits, State of Charge recommends policy changes for Commonwealth to adopt. The recommendations include encouraging regional coordination around energy storage, amending the Alternative Portfolio Standard (APS) to include all types of advanced energy storage, encouraging expanded use of energy storage in existing energy efficiency programs, considering energy storage as a utility grid modernization asset, and pairing storage with renewables in future long-term clean energy procurements, and considering standards and code development for energy storage. The report also highlighted programmatic opportunities including rebate programs for customer-sited energy storage, solar plus storage initiatives, the continued funding of clean energy resiliency initiatives focused on energy storage for critical facilities, and continuing the MassCEC investment and technology development programs to support energy storage companies in Massachusetts.

These recommendations, if adopted, have the potential to yield 600 MW of advanced energy storage technologies on the Massachusetts grid by 2025. These recommendations are anticipated to provide over $800 million in cost savings to ratepayers and approximately 350,000 metric tons reduction in GHG emissions over a 10 year time span which is equal to taking over 73,000 cars off the road.

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Following the release of the study, DOER and MassCEC will utilize the findings to implement a grant program for energy storage demonstration projects over a range of application scales. This grant program, to be launched later this year, will utilize the remaining funds available from the $10 million Governor Baker initially budgeted for the Energy Storage Initiative.

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DOER is also beginning a robust stakeholder engagement process to solicit feedback on the study, as well as to inform the decision making process in determining whether Massachusetts should establish an energy storage procurement target ahead of the December 30, 2016 deadline set forth in the legislation. Further details on the public engagement process, including information on public listening sessions and comment periods, can be found here.

There is great potential in Massachusetts for new advanced energy storage to enhance the efficiency, affordability, resiliency and cleanliness of the entire electric grid by modernizing the way we generate and deliver electricity. In order to increase energy storage deployment, this Study presents a comprehensive suite of policy recommendations to generate 600 MW of advanced energy storage in the Commonwealth by 2025, thereby capturing $800 million in system benefits to Massachusetts ratepayers.

Increasing the amount of storage capacity on the power grid has the potential to transform the way we

generate and consume electricity for the benefit of Massachusetts ratepayers. As compared to other

commodities, the electricity market currently has the least amount of storage in its supply chain. commodities, including food, water, gasoline, oil and natural gas, have an average storage capacity of

10% of the daily consumption. The electricity market currently has only a storage capacity of 1% of daily electricity consumption in Massachusetts. In addition to having a small storage capacity, electricity is also the fastest supply chain traveling at 1,800 miles per second, meaning that without storage electricity needs to be produced, delivered, and consumed nearly instantaneously for the grid to maintain balance. This requires grid infrastructure -- including generation, transmission and distribution systems -- to be sized to manage the highest peak usage of the year, despite consumer

electricity demand varying significantly both throughout the day and at different seasons of the year

The need to size all grid infrastructure to the highest peak results in system inefficiencies, underutilization of assets, and high cost to ratepayers. These high costs can be seen in the highly variable hourly electricity prices. Over the last three years from 2013 – 2015 on average, the top 1% most expensive hours accounted for 8% ($680 million) of Massachusetts ratepayers’ annual spend on

electricity. The top 10% of hours during these years, on average, accounted for 40% of annual electricity spend, over $3 billion.1 Energy storage is the only technology that can use energy generated during low cost off-peak periods to serve load during expensive peak periods, thereby improving the overall utilization and economics of the electric grid (Figure 3). Until recently, the ability to store electricity across the electric grid was limited, but recent advances in new energy storage technologies, such as grid-scale batteries, are making viable the wide-scale deployment of electricity storage.

Advanced storage technologies can also provide the flexibility needed to reliably manage and utilize

renewable resources’ variable output. Today, the electric system operates on a “just-in-time” basis, with decisions about power plant dispatch that are based on real-time demand and the availability of transmission to deliver it. Generation and load must always be perfectly in balance to ensure high power quality and reliability. As intermittent renewable generation, such as wind and solar, grows in Massachusetts maintaining this perfect balance becomes more challenging. Additionally, storage resources can be an important tool for better managing electric outages caused by severe weather, thus increasing grid resiliency. For these reasons and more, new storage technologies are an important

component of a modern electric grid and a resilient clean energy future for the Commonwealth

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According to the U.S. Department of Energy (DOE), there are already more than 500 MW of advanced energy storage in operation in the U.S. In 2015 alone, there were 221 MW of new deployments of advanced energy storage in the U.S., an increase of 243% over the installations in the U.S. for the year 2014. It is expected that annual deployments of advanced energy storage will exceed 1 GW per year by 2019 and be at nearly 2 GW per year by 2020 (Figure 5). It is expected that there will be nearly 4,500 MW of advanced storage technologies operating on the U.S. grid by 2020.

Overall, the U.S. Market for advanced energy storage technologies is expected to grow by 500% in five years. Prices for advanced storage technologies have decreased significantly in recent years.4 According to IHS, a leading business data provider, average lithium-ion battery prices decreased in cost over 50% between 2012 and 2015, and are expected to decrease over 50% again before 2019.

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However, according to ISO-NE’s State of the Grid 2016 report, the peak demand continues to grow in the region at a rate of 1.5% per year (Figure 7) resulting in added costs to ratepayers to maintain reliability.6 In order to provide enough energy during peak periods new natural gas “peaker” plants are being built even though they are needed only for a small amount of hours per year.7 According to the U.S. Energy Information Administration (EIA) peaker plants only operate 2% – 7% of the hours in a year (Figure 8). Instead of generating electricity with natural gas “peaker” plants during times of high electric and fuel prices, storage can be used to “peak shift” by using lower cost energy stored during off-peak periods to meet this demand.

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In order to better quantify the impact of adding storage to the Massachusetts grid, the State of Charge

Study Consultant Team performed a comprehensive modeling analysis, using Alevo Analytics’ Advanced Storage Optimization tool, to evaluate and quantify the potential benefits that energy storage distributed across Massachusetts’ electric grid can provide ratepayers. Specifically, modeling was conducted to determine:

 The optimal amount of advanced storage in MW and MWh to be added over the next 5 years –

through 2020 – that will add maximum benefit to ratepayers;

 The distribution of energy storage locations across Massachusetts where adding storage will

achieve maximum benefits to the ratepayers; and

 A quantification of the reduction in GHG emissions that can be achieved with the optimum level

of energy storage deployments across the state.

Alevo Analytics’ Advanced Storage Optimization tool utilizes multiple iterations of both Capacity and Production Cost modeling, capturing both hourly and sub-hourly Massachusetts grid conditions, to predict future grid needs and challenges. The data utilized for the model include detailed Massachusetts specific generation, transmission and distribution data in a simulation of the ISO-NE markets that co-optimize energy and ancillary services subject to transmission thermal constraints.

The existing generation resource mix (including all installed pumped storage in ISO-NE) is used in the simulation. The model also accounts for expected generation retirements and additions during the study period. The model was stress tested with varying levels of load requirements, fuel prices, and renewable deployment.

By evaluating current and predicted energy storage costs, other technology costs, and economic conditions, the model determines the amount of advanced energy storage that will optimize the overall operation and cost of the Massachusetts electric system.

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The model analyzed 1,497 nodes and 250 substations in Massachusetts that include generator, transmission and load substations where storage could be located. The model simulated the electric system to determine where and at what quantity storage could be added in Massachusetts in order to achieve the following benefits: Minimization of wholesale market costs Minimization of Massachusetts emissions Increased utilization of transmission and distribution assets Minimization of incremental new transmission assets Increased resiliency from wide-scale transmission, distribution, and generation outages Reduced requirements for new peaker power plant capacity

For each location, the algorithm determines the optimal amount of energy storage by MW and MWh by identifying where the cost of the storage deployment is less than the total benefits to the system.

Modeling Results: Cost and Benefit Analysis

Through this modeling effort, it was found there is a potential for a large cost effective deployment of advanced energy storage in Massachusetts. The modelling results show that up to 1,766 MW of new advanced energy storage would maximize Massachusetts ratepayer benefits. The results show that this amount of storage, at appropriate locations with sizes defined by system requirements and dispatched to maximize capability, would result in up to $2.3 billion in benefits. These benefits are cost savings to ratepayers from: Reducing the price paid for electricity Lowering peak demand by nearly 10% Deferring transmission and distribution investments Reducing GHG emissions (reducing the effective cost of compliance) Reducing the cost to integrate renewable generation Deferring capital investments in new capacity Increasing the grid’s overall flexibility, reliability and resiliencyThe model found that this optimized amount of storage in Massachusetts would provide an additional $250 million in regional system benefits to the other New England states due to lower wholesale market prices across all ISO-NE zones. The model estimates that this optimal amount of storage provides a reduction in GHG gas emissions by more than 1 MMT CO2e over a 10 year time span and is equivalent to taking over 223,000 cars off the road over the same time span.

This optimized amount of storage is estimated to cost $970 million to $1.35 billion. Considering the Massachusetts ratepayer benefits alone of $2.3 billion, 1,766 MW of storage provides net benefits to ratepayers with a benefit-cost ratio ranging from 1.7 to 2.4.

In addition to system benefits that accrue to all ratepayers, the modeling results also show the potential for $1.1 billion in direct benefits to the resource owners from market revenue. The modeling results indicate that there will be a total storage value of $3.4 billion, where $2.3 billion comes from system benefits, i.e. cost savings to ratepayers, and $1.1 billion in market revenue to the resource owners.

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Regulatory and Policy Recommendations

Based on the Modeling analysis in Chapter 4 and the Use Case analysis in Chapter 5, as well as the review of other state’s storage policies and programs in Chapter 6, a roadmap is proposed for Massachusetts to facilitate the deployment of energy storage within the state to achieve optimal system benefits to rate payers. The study provides a suite of recommendations to support 1) the growth of cost-effective storage deployment on the MA grid and 2) the growth of storage companies as part of Massachusetts’ robust clean tech economy. These recommendations are expected to yield 600 MW of new energy storage technologies on the Massachusetts grid by 2025 providing over $800 million in cost savings to ratepayers and approximately 350,000 metric tons reduction in GHG emissions over a 10 year time span which is equal to taking over 73,000 cars off the road.

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